Central Bank holds rates in April

At its 11 April meeting, the National Bank of Serbia (NBS) kept the key policy rate unchanged at 6.50%. It also held the deposit and lending facility rates steady at 5.25% and 7.75%, respectively. The decision marked the ninth consecutive hold and was in line with market expectations.

The Bank highlighted that domestic price pressures eased through February on the back of prior monetary tightening and slowing food inflation. The NBS now sees inflation returning to the 1.5–4.5% target band in May, slightly earlier than previously anticipated. Moreover, it expects inflation to hit the mid-point of the target by end-2024 and remain around that level in the medium term. Nonetheless, the Bank decided not to start its easing cycle due to upside inflation risks, including rising oil prices, heightened geopolitical tensions and global supply chain disruptions.

The NBS did not provide explicit forward guidance. Instead, it reiterated that future decisions will depend on the pace of domestic disinflation and the evolution of both domestic and external inflation drivers. Our panelists project the Bank to cut rates by 50–300 basis points by year-end as price pressures soften. The next meeting is scheduled for 10 May.

Ljiljana Grubic, chief economist at Raiffeisen Research, commented on the outlook: “Though domestic inflation data supports a looming rate cut, the recent US inflation data and market rumours that the Fed might postpone the first rate cut to Q3 (which we also see as increasingly likely), might also influence the local central bank decision. For the time being, we keep our scenario on first-rate cuts in late Q2 at a very gradual pace (-25bp), though will monitor the Fed and ECB statements and respond with new forecasts if needed.”

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